Euro Zone Bonds await German Inflation, Ignore RateCut Comments

AMSTERDAM, Jan 28 Reuters Euro zone bonds were little changed on Thursday as focus turned to inflation data, while debt markets continued to brush aside rhetoric from the European Central Bank drawing attention to interest rate cuts.

Januarys preliminary inflation in Germanys Saxony region jumped to 1 yearonyear from 0 in December. The German national reading, due at 1300 GMT, is expected to show a similar trend; a Reuters poll forecasts an increase to 0.7 yearonyear from minus 0.3 in December.

The market impact of that figure rising into positive territory again should be muted as even the ECB has already flagged it as being mainly mechanical due to a VAT hike, ING analysts told clients.

The expiry of a valueadded tax cut Germany implemented in July is expected to push up its inflation reading.

Germanys 10year yield, the benchmark for the region, was unchanged at 0.55 at 0828 GMT.

Focus was also remained on Wednesdays statement from ECB governing council member Klaas Knot, who said the ECB was ready to cut its deposit rate further below zero if necessary to keep its inflation target in sight. His words were in particular focus as he is considered a hawkish member of the council.

That was followed by a story by Bloomberg News that reported policymakers were uncomfortable that investors were largely ruling out further rate cuts, and have agreed to emphasize that it remains a viable option, citing unnamed officials.

The report also said, however, that officials…

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